Apologizing for Bad News? Be Careful with the Video

On April 20, 2010, BP's Deepwater Horizon drilling rig exploded, killing 11 workers and spilling millions of gallons of oil into the Gulf of Mexico. On June 3, 2010, BP chief executive Tony Hayward went on YouTube, promising to "make this right." By the end of July, Hayward had been fired.

Perhaps no CEO could have survived a disaster of Deepwater Horizon's magnitude, but Hayward's widely criticized YouTube video was a disaster of another sort. Coming more than a month after the explosion, it was late. And before apologizing, Hayward spent 38 seconds — an eternity on video — describing what BP's response would be and promising that the company would "honor all legitimate claims," a statement that could be taken to imply that BP was as ready to dispute claims as to address them.

Now, a recent study co-authored by Frank D. Hodge of the University of Washington's Foster School of Business has confirmed that video can make bad news worse. The study, published in The Accounting Review, examined the impact of using video to announce financial restatements. Hodge and his co-authors, W. Brooke Elliot of the University of Illinois and Lisa Sedor of DePaul University, discovered that announcing restatements via video is beneficial only when top management, according to Hodge, "accepts responsibility for the restatement."

"Video is a magnifier, either on the positive or negative side," says Hodge. He adds that the authors launched the study to examine the differing impacts of video and written text because "younger shareholders are demanding information in different ways," such as via video and the Internet. The variable that Hodge and his co-authors focused on was trust. "Video magnifies the impact on trust of negative information, and trust affects investment decisions," says Hodge. And the key to being seen as trustworthy, he says, is accepting personal responsibility.

According to the study, "Even when the violator [of the investor's trust] issues an apology, accepting responsibility by making an internal attribution repairs trust to a greater extent than does denying responsibility by making an external attribution" — that is, shifting blame.